Why Use a Letter of Credit?
Why Letters of Credit? The credit, which is one of the payment methods used in the trade, is why the parties prefer.. or why not..
In fact, its worldwide use is the main reason why the declining letter of credit is not preferred by the years; lack of knowledge about the functioning of the letter of credit and lack of experience and knowledge in preparing documents appropriate to the letter of credit. Whereas letters of credit When used correctly, it is a payment method that protects both buyer and seller. If both of the 2 parties understand and fulfil their duties and responsibilities, the letter of credit works properly and both are satisfied: the buyer receives the goods or products of the requested quality, and the seller receives payment.
So what should the parties be careful about...
The fact that the credit was opened according to UCP 600 (Uniform Customs and Practice for Documentary Credits) rules, an ICC (International Chamber of Commerce) publication, is the first consideration to be considered. The parties must be aware of their authority and responsibilities, having knowledge of UCP clauses. The duties and responsibilities of the banks, which are another party to the credit, are again framed by UCP, which is limited to the documents mentioned in the credit; that is, banks are not interested in the quality of the goods. The way for the importer to secure itself with regard to the quality of the goods is through quality documentation.
In terms of the exporter, the most important issue is that in order to collect the cost of the goods, the ICC submits the documents in accordance with the rules set by the creditor and the letter of credit to the relevant party at the relevant time. Therefore, it is important that the credit text is read well and that there is experience with the documents to be prepared.
In practice, it may take time to have experience in general, as there may be differences in country and product basis. Nevertheless, credit is the best method of payment that minimizes the risks of the parties in the current circumstances, if the work is provided in accordance with their rules.
